Buy-To-Let Mortgage Advice | Cooper Associates

Whether you are looking to purchase your first buy to let property, or refinance your existing buy to let properties, the choices can be bewildering.

Lending policy for buy to let mortgages has changed significantly in recent years and the way buy to lets are taxed has changed too. Our mortgage advisers have a wealth of experience in advising new landlords and those with extensive property portfolios.

Unlike other mortgage advisers, we don't just view an investment property as a transactional approach.

We work hard to build long term relationships and understand you are looking to make your finances work hard for you. We aim to identify any areas of tax expertise you require as a result of your buy to let property. Should we identify such a concern, a specialist adviser from our financial divisions, Cooper Associates Wealth Management or Cooper Associates Accountants is available to help.

We work holistically to deliver the best mortgage and financial outcome tailored just for you.

What is a buy to let?

A buy to let is a form of investment where a residential property is purchased with the intention of letting it out. Most investors look to make a profit either through rental income or the appreciation of the property value over time.

A buy to let mortgage is a loan secured against one of these properties, with the investor being the landlord.

If you are purchasing a property, with the sole intention of letting it out (and you are not a cash buyer), you will require a buy to let mortgage.

Please find below our helpful guides which will provide you with further information.

What is the difference between a buy to let mortgage and a residential mortgage?

Unlike a residential mortgage, where the amount you can borrow is based on your income and outgoings, a buy to let mortgage is assessed based on the rental income that can be expected from the property to be let. Some buy to let mortgage lenders will also have a minimum income requirement, usually around £25,000 to qualify for buy to let lending.

Lenders will request that the rental income is sufficient to meet the proposed interest only mortgage payments by at least 125%. This is known as the Interest Coverage Ratio. This means that although the rental income expected for a buy to let property might just cover the mortgage payment, it could be classed as unaffordable based on the mortgage lender’s calculations. This is because the mortgage lender wants to be certain the rental income is sufficient to cover the cost of any maintenance, insurance and any other fees you may be charged, such as those by a letting agent.

The minimum deposit you need to put down for a buy to let mortgage is higher than that of a residential property. Typically, you will need a deposit of 25% of the property value although some mortgage lenders offer rates for those with smaller deposits. For the most competitive rates, a 50% deposit is required.

Arrangement fees on a buy to let mortgage can also be higher than those for residential mortgages, and some are charged as a percentage of the amount borrowed, rather than a flat fee. Most buy to lets also incur legal fees and valuation fees, for both purchase and remortgage.

Frequently asked questions

Do I need a tenancy agreement?

In most instances, yes. If you have purchased a property and you are letting it to a private tenant, your mortgage lender will ask to see the Assured Shorthold Tenancy Agreement.

I’m a first-time buyer, can I buy a buy to let?

Yes, but your options will be very restricted when it comes down to choice of lender. The majority of buy to let lenders prefer you to own your own home for a minimum of six months before being eligible for a buy to let. You may not live in this property but be able to evidence you own it. Some lenders will also have restrictions for those who are first-time landlords. Your mortgage adviser will know which lenders to speak with if you have never owned or let a property before.

What happens if the property is empty?

It is your responsibility to continue servicing the mortgage payments. You will need to be prepared for short gaps between tenancy agreements. If you would fall into financial difficulty without a tenant, you may need to reconsider your options.

Can I let my property to students?

Yes, although not all buy to let lenders will allow this. Your mortgage adviser will be able to talk you through your options. It is worth noting that a student let is likely to be occupied by individuals, rather than a family so you will need to comply with rules around Houses in Multiple Occupations (HMOs).

I want to let out the property I am living in, and buy a new one. Can I do this?

If you have an existing residential mortgage, you will need to apply for consent to let from your mortgage lender. Your lender will then decide if they are happy for you to let the property out. There is sometimes a charge for doing this. If you do not apply for consent to let, or do not inform your lender that the property is going to be let out, you are in breach of your residential mortgage contract.

If your lender is not happy for you to let out your property, or you need to take equity out of the property for your onward purchase, a buy to let mortgage will need to be arranged.

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Next steps - The buy to let process

Owning a buy to let property is a big commitment and there is a lot to consider before taking the first step to becoming a landlord. Follow our Next Steps to help you know where to start.

Decide where you want to buy

You may have a clear idea of the type of property you want to buy and the geographical location. Some landlords prefer to have their buy to let closer to them, others are more concerned by high rental yield and strong demand.

Ensure you speak with local letting agents. They will be able to advise you on those properties in your desired area which are most in demand. Ensure you check local amenities such as schools and transport links.

Most significantly, check with the letting agent as to the typical rental income that can be expected for the property value your deposit will allow.

Check the figures

Once you have an idea of the expected rent, and before offering on a property, ensure the finances work.

A deposit of 25% is usually required, along with the associated fees of purchasing a new property. Remember, additional rate Stamp Duty is charged on buy to lets so ensure you have factored this in.

You will benefit from speaking with a mortgage adviser at this point. Your mortgage adviser will be able to confirm that the rental income expected for the property is sufficient to meet a proposed lender’s requirements.

Additionally, your mortgage adviser will be able to point out any potential shortfalls or issues with a property you may not have identified.

Make an offer

Once your mortgage adviser has confirmed what you are able to afford, make an offer on your desired property.

The asking price of the property is the price the vendor would like to achieve for the property, so this is not necessarily the price you will pay.

Once your offer is accepted, let your mortgage adviser know your purchase price and instruct your solicitor.

Application

During the application process, your mortgage lender will request any documents required for your application. The potential documents they may ask to see can be found here.

A survey of your property will be done to ensure it is suitable for mortgage purposes. Your lender will instruct a basic mortgage valuation only although there are other types of survey available.

Exchange of Contracts

Once your solicitor has completed their searches on your property and is in receipt of the valuation report and offer, exchange of contracts will occur. At this point, you are legally committed to buying the property and run the risk of losing your deposit should you not proceed.

Your buildings insurance policy will need to be started at this point. You will need to ensure that the provider is aware the insurance is for a property that is being let out.

Completion

On completion, you will receive the keys to your new rental property. Ensure the property is ready to be let, making sure you meet all of your statutory requirements as a landlord.

Appoint a letting agent to manage your property should you not wish to do this yourself.